SEC Division of IM Issues Guidance on Exemption for Advisers to Venture Capital Funds

The SEC Division of Investment Management ("IM") issued a guidance regarding the application of the exemption from investment adviser registration available to an investment adviser that advises solely on one or more "venture capital funds," as defined in Advisers Act Rule 203(l)-1 ("Venture Capital Fund Defined").

The guidance provides five scenarios which the SEC states are illustrative of the inquiries which the Division of IM has received regarding the venture capital exemption ("VC Exemption"). The Division's responses to the scenarios include the following:

1. The Division would not object if an intermediate holding company was wholly owned collectively by more than one venture capital fund advised by the same investment adviser (or its related persons);
2. The Division would not object if an adviser relying on the VC Exemption disregards alternative investment vehicles ("AIVs") when determining whether it could meet the requirements of the VC Exemption, provided that the AIV was formed solely to address investors' tax, legal or regulatory concerns and such AIV was not intended to circumvent the VC Exemp­tion’s general limitation on investing in other investment vehicles; and
3. The Division would not object to the use of a liquidating trust by an investment adviser under the circumstances described above while relying on the VC Exemption.

See: Division of IM Guidance Update.
See generally: Lofchie's Guide to Hedge Funds: Registration Requirement Chapter.